Mindful that so many may be inspired after the Academy Awards to take a different approach, the following post, originally published here and now here offers some guidance.

[Ed. note: Added the following on 2/26/15]

I expect there are post-#Oscar resolutions from creatives & those who aspire to be a part of it to take risks; to execute. This is good.

— Peter Kaufman (@Dealfatigue) February 23, 2015

.@DanWilliams @lrozen win-win should always be the goal in any negotiation, but I get nervous when one side says that. It's a zero-sum tell.

— Peter Kaufman (@Dealfatigue) February 11, 2015

1. Aspiring producers/writers/creatives: dogged persistence, while Capraesque, is not in itself enough (woefully misplaced?) to execute.

— Peter Kaufman (@Dealfatigue) February 7, 2015

2 indie or not, to produce for the mass market, requires an understanding that the business of the art views the project as a commodity.

— Peter Kaufman (@Dealfatigue) February 7, 2015

3. Do you have the rights? Do you have a director that actors want to work with? Do you have folks whose endorsement has weight?

— Peter Kaufman (@Dealfatigue) February 7, 2015

4 what are you selling? Passion, enthusiasm, tenacity alone is not enough. Can u execute? How do you prove that?

— Peter Kaufman (@Dealfatigue) February 7, 2015

5. Great. So you can make a movie. Who will watch it? Why? The easiest way to answer all of these questions is by providing/serving up…

— Peter Kaufman (@Dealfatigue) February 7, 2015

7. The fundamental business elements required to make a movie. Rights to good material Cast that gets butts in seats Capital

— Peter Kaufman (@Dealfatigue) February 7, 2015

9. If you don't want to do that or are unable to do that then be honest with yourself that you've chosen a tougher slog.

— Peter Kaufman (@Dealfatigue) February 7, 2015

1. Today's (possible) lunch topic at @filmindependent #FINDForum: you OWN the results of your career/work; both good and bad.

— Peter Kaufman (@Dealfatigue) October 25, 2014

2. Sure, fate and luck play a hand, but come on, you know better. #FINDForum

— Peter Kaufman (@Dealfatigue) October 25, 2014

3. I write this not to add another layer of blame for work gone wrong. Though by all means take all the credit if your work is going well.

— Peter Kaufman (@Dealfatigue) October 25, 2014

4. ..but to create an opportunity for you to be empowered in the outcome of your work, the folks you work with …. #FINDForum

— Peter Kaufman (@Dealfatigue) October 25, 2014

5 … and your long term and short term goals as artists. #FINDForum

— Peter Kaufman (@Dealfatigue) October 25, 2014

1. Phoning it in but expecting exceptional results is one of the most nefarious forms of self-deception.

— Peter Kaufman (@Dealfatigue) October 21, 2014

2. Mind you, sometimes good is good enough but if you're not already conscientious, then you're likely getting in your own way. Often.

— Peter Kaufman (@Dealfatigue) October 21, 2014

3. I think fear of failure has a lot to do with this. So does one's self-regard of where one is in the pecking order of things.

— Peter Kaufman (@Dealfatigue) October 21, 2014

4. So does run of the mill lethargy and laziness. Why try harder when I can watch "New Girl"?

— Peter Kaufman (@Dealfatigue) October 21, 2014

5. The other factor is often the allure of being distracted by busy work instead of doing the hard work . . .

— Peter Kaufman (@Dealfatigue) October 21, 2014

6. … that makes the difference between actual execution and "table talk."

— Peter Kaufman (@Dealfatigue) October 21, 2014

7. This is all the more so for creatives and those that work for them like attorneys, agents and managers.

— Peter Kaufman (@Dealfatigue) October 21, 2014

Closing binder for $3 million film financing (left).
Closing binder for $25 million VC startup financing (right).

#uclaentertainmentsymposiym financing film slates are back

— Peter Kaufman (@Dealfatigue) March 8, 2014

#uclaentertainmentsymposiym interesting nugget: so much money in the film investment space that studios are raising their distribution fees.

— Peter Kaufman (@Dealfatigue) March 8, 2014

Photo: Headline act: Kenny and Harvey Takeaway: TV TV TV mantra (at UCLA Freud Playhouse) http://t.co/qzbG4zSBeI

— Peter Kaufman (@Dealfatigue) March 8, 2014

Yes. “@shericandler: TV or just episodic?" My take is both. One-offs with back door pilot potential are less risky though.

— Peter Kaufman (@Dealfatigue) March 8, 2014

#uclaentertainmentsymposiym advertisers getting squeezed out of TV and making their own content. Case study: LEGO movie

— Peter Kaufman (@Dealfatigue) March 8, 2014

#uclaentertainmentsymposiym Ratner: big brands will go direct to well recognized content creators for longer term deals to use their brand.

— Peter Kaufman (@Dealfatigue) March 8, 2014

#uclaentertainmentsymposiym (cont'd) as opposed to going through studios to talent/content creators.

— Peter Kaufman (@Dealfatigue) March 8, 2014

"We have a theatrical window followed by a piracy window" #goingforthefunny #uclaentertainmentsymposiym

— Peter Kaufman (@Dealfatigue) March 8, 2014

@Dealfatigue So where do we go from here?

— Fay Hauser-Price (@Hauslightsfay) March 8, 2014

Bank discount/spread improved to 90% for state tax incentives (from 80%) #uclaentertainmentsymposiym

— Peter Kaufman (@Dealfatigue) March 8, 2014

Who's banking incentive paper at 90%? I'm asking for a friend. #uclaentertainmentsymposiym

— Peter Kaufman (@Dealfatigue) March 8, 2014

A lot of conversation but very little actual money from China investing in film #uclaentertainmentsymposiym

— Peter Kaufman (@Dealfatigue) March 8, 2014

Sovereign wealth funds are back in film #uclaentertainmentsymposiym

— Peter Kaufman (@Dealfatigue) March 8, 2014

"China's goal is due diligence of Hollywood docs/assets to replicate homegrown industry not to actually invest" #uclaentertainmentsymposiym

— Peter Kaufman (@Dealfatigue) March 8, 2014

Declining European distribution market. #uclaentertainmentsymposiym

— Peter Kaufman (@Dealfatigue) March 8, 2014

Supergap is savior to indie financing but very expensive. "Teen money" interest rates. Lots of mez, P&A funds from hedges/family offices.

— Peter Kaufman (@Dealfatigue) March 8, 2014

Still remember seeing Harvey 5 years (?) ago at #tiff walking alone on the street post-Miramax Disney separation. He rebooted well.

— Peter Kaufman (@Dealfatigue) March 8, 2014

Say this about Harvey: portfolio approach to material/breadth of players/stakeholders in Weinstein projects (inside/outside biz) impressive

— Peter Kaufman (@Dealfatigue) March 8, 2014

You can deliver that if you're Bob and Harvey bc they leverage their substantial track record. Not so much for others.

— Peter Kaufman (@Dealfatigue) March 8, 2014

@Dealfatigue Disney dumped the Weinsteins because their profits weren't good enough – I side with Disney. Admiration smacks of desperation

— Edward Anthony Rayne (@rayne_ea) March 8, 2014

.@rayne_ea don't know enough of the details on that. I think the Weinsteins on a leash as Disney had was a great long game but …. 1/2

— Peter Kaufman (@Dealfatigue) March 8, 2014

.@rayne_ea shareholder value (for many public companies) usually requires shorter-term thinking 2/2

— Peter Kaufman (@Dealfatigue) March 8, 2014

@Dealfatigue Now that's the truth. What about people at no table? Where's the leverage & access?

— Fay Hauser-Price (@Hauslightsfay) March 8, 2014

.@Hauslightsfay need to execute with high production values on work that matters or art with authentic vulnerability. No cutting corners.

— Peter Kaufman (@Dealfatigue) March 8, 2014

Q&A questioner thanked Harvey for his contributions. Harvey said, "thank you, though some of the lawyers in this room may disagree"

— Peter Kaufman (@Dealfatigue) March 8, 2014

2day's nugget: "Success brings with it the fear of blowing it. With more to lose, there's more pressure not to lose it" via @ThisIsSethsBlog

— Peter Kaufman (@Dealfatigue) March 9, 2014

I'm fascinated by the growing celebrity and brand recognition of club DJ's with the general public. This is trending. #fb #in

— Peter Kaufman (@Dealfatigue) February 16, 2013

What happens in Vegas, may spread to the rest of the country.

Resiliency is not baked in to us; it's something you learn over time. After in-artfully coping with setbacks and disappointment. Many times.

— Peter Kaufman (@Dealfatigue) January 19, 2013

[Ed. Note: Cross-posted in part from my tumblr blog. See the additional note at the bottom of this post.]

I generally don’t blog politics. It can be bad for business. However, the SOPA/PIPA legislation, which pitted new tech against old media, requires a response.

Piracy is a serious problem that may or may not need additional attention (we already have the DMCA to protect copyright interests). However, the legislation as drafted is bad law. While hardly scientific, most if not all of the entertainment lawyers I discussed the bills with agree – even the ones who work at the studios.

If these bills became law then it would be legal for the government to shut down sites without due process. In effect, fair use can be ignored and sites are guilty until proven innocent. Litigation can be costly and few would opt to fight in the face of substantial legal fees and an unprofitable victory.

The clip above is a parody using someone else’s copyrighted work. It’s likely that such works – notwithstanding what you think of this particular parody – could survive on the net.

That’s not how our country is supposed to work and that’s certainly not how this law should work. This legislation can be redrafted to stem piracy without sacrificing our core values.

If you haven’t already, I urge you to read the current drafts of SOPA and PIPA and tell me if you still support these bills.

[Ed. Note: Prior to posting here and on Tumblr, a music executive friend of mine and I debated the merits of the bills on Facebook. Much of what I wrote above was part of that debate. After I blogged about it, my friend posted a link on Facebook to a blog post in favor of the legislation. You can find that here. In essence, the post in support argued that those in opposition – even those that took the time to read the bills – were misinterpreting the language and intent of the legislation. However, the fact that the language may be open to misinterpretation or, as many believe, exposes the true intent of the legislation, proves my point. If this legislation is broad enough to be misinterpreted by so many people, including intellectual property/entertainment lawyers, law professors, media executives and politicians, then they certainly can be and will be used for unintended or nefarious purposes if they become law. As I write this, I am sure my friend is formulating a response. I will keep you posted.]

Fred Wilson wrote a piece on his blog today complaining about the film business’ distribution model. Fred wrote in part that:

denying customers the films they want, on the devices they want to watch them, when they want to watch them is not a great business model. . . . [Studio executives] insist that they need their windows. They argue they need to manage access to their films to extract every last dollar from the market. That just doesn’t make sense to me. If they went direct to their customers, offered their films at a reasonable price (say $5/view net to them), and if they made their films available day one everywhere in the world, I can’t see how they wouldn’t make more money.

While I have no allegiance to the current business model, I understand it. Producers of any new film hope to see it distributed in a number of distribution windows starting with an exclusive theatrical release and continuing through to wide release on multiple distribution platforms typically over the course of 12-18 months.

Wilson advocates simultaneous “streeting” across all distribution platforms. As technology improves, the lines of each traditional distribution window are blurring and will be replaced with something more akin to what Fred is advocating.

Even so, I can’t help thinking that audiences might lose something valuable in the process – maybe even movie theaters themselves. That would be ironic since movie execs sounded similar alarms when television was the disrupting technology in the 1950s. Then as now, movie theaters survived – but for how long?

What follows is most of what I wrote in response to Fred’s post with grammatical tweaking and references to other commenters omitted:

There are two . . . significant obstacles to simultaneously “streeting” movies across all distribution windows.

1. Movie theaters are a limited high-value distribution channel. There are only so many movie theaters and so many seats in those theaters. Only a small fraction of the movies produced each year get a theatrical release in the US. Foreign distributors look at a US theatrical release as a quality marker (this, despite the fact that international revenues generally account for 70% of a film’s budget). So a domestic theatrical in it of itself drives the value of foreign distribution rights up. This kicker in international revenues could not exist in its present form under a simultaneous street paradigm.

2. Allocation of marketing dollars. Movies and virtually every other product with novel elements have a distribution cycle, with demand for a well regarded/well marketed product highest at or near inception (e.g., the latest incarnation of any Apple product or Star Wars sequel). The costs of striking prints of the film – which are coming down as more theaters use digital projectors – and advertising (also called “P&A”) on a typical domestic release of a 1,000 screens or more are substantial. Studios/producers require millions in marketing dollars, sometimes in excess of the cost to make the movie, to theatrically release a movie in the United States.

The goal is to fill each and every seat of every screen in which the movie is shown to justify these marketing expenses (which, if successful, drives up the value of international revenues as noted above). That would not be possible if consumers had other, possibly more convenient choices that might dilute audience share at movie theaters. Although each exploitation window requires additional marketing spend, a successful US theatrical release can have a halo effect on subsequent windows (e.g., Titanic, the Twilight movies).

3. History of Industry Resistance to New Technologies. Lastly, the industry has always been hostile to new technologies. Silent movies were adverse to talkies which were against television which bristled to home video and so on to the present day.

The advent of on-demand viewing of movies in theatrical release is already part of an evolving theatrical release window. The industry needs time to adapt its model to the new demands of its audience. Change in the film business is inevitable even if it won’t come fast enough for the Fred Wilsons of the world.

Please check out the DealFatigue blog on Tumblr at dealfatigue.tumblr.com.

I’ve been blogging on the Tumblr site for the past year or so. It’s briefer and broader in scope than dealfatigue.com.

I will continue writing longer posts here and look forward to reading your feedback on both blog sites.

Wishing all of us the very best in 2012!

[Ed. Note: This is a reprint of my 10/31/09 post.] Last year, procrastination got the best of me and by the time I got around to the annual pumpkin purchase on October 30th, the supermarkets were out of all but the most damaged pumpkins. I was left with no alternative than to deal with the local Pumpkin Patch Guy (a/k/a the Christmas Tree Lot Guy).

Some might say I was merely on the wrong side of supply and demand. But sitting on his throne of hay bales, Pumpkin Patch Guy went beyond aggressive deal making. He was ripping me off.

I should of walked away but it was late and the kids were tired. Feeling like a rube, I pulled out my wallet and gave him forty bucks for a couple of sad looking pumpkins plus another ten for the carving kit. This year, I got smart and didn’t go back. I planned ahead and procured my pumpkins at a substantial discount.

Like Pumpkin Patch Guy, a rep has a fiduciary duty to maximize value. But does that always result in doing what’s best for the client? Maybe so if it’s about short term value (it’s about the upfront money, stupid!).

But what about over the long term? Pumpkin Patch Guy lost me as a repeat customer by gouging me simply because he could.

Effective negotiation and deal making often require more than selling to the highest bidder. In many cases, the parties involved have to be able to work together over the long haul (e.g., SAG and the AMPTP).

Good will and occasional restraint by the stronger party can go a long way to salve the pain of accepting unpopular deal points by the weaker player. You’re not looking for a love fest here; merely a path towards building trust over subsequent negotiations.

Pumpkin Patch Guy might have earned my continued business if he’d thrown in the carving kit or a coupon for future discounts; something, anything to make me feel better about being gouged. SAG and the studios might have been able to change the discordant tone of their negotiations by simply finding more common ground through the exchange of ego nickels. Now, months after SAG sealed its deal with the studios, there continues to be profound polarization between the two camps and their supporters.

Does negotiating an arguably more fair deal really create momentum and good will for the next or does it betray weakness in your position? Does aggressive negotiation help, hinder or have no effect on the next deal? Whatever your approach, it pays to consider whose ox is ultimately getting gourd.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

[Update: Whether it was the recession or bad business practices, Pumpkin Patch Guy was replaced by Pumpkin Patch Guy 2.0.
This year’s pumpkin purchase went without a hitch.
They even threw in the carving kit!]

If you want to get anywhere in any aspect of the entertainment business you need friends in high places.

But this business is a business. Friends can easily become enemies even if you make business decisions that in any other context might be appropriate.

This is true for most business cultures but it’s all the more acute where, as here, there’s a high concentration of emotionally driven, exceptionally creative (but oftentimes, profoundly insecure) people all fighting for far too few opportunities. With that kind of competition, you may feel that you need all the edge you can get; sometimes, unfortunately, even at the expense of your friends.

Sheer tenacity will get your foot in the door. Talent will keep you in the room. But the only way to succeed in this business – and be able to maintain the momentum to remain successful over the long term – is to have friends that you can count on professionally; that make you feel safe creatively; and that make it possible for you to do your best work consistently.

It takes a village.

That’s the rub.

It’s always personal.

I’ve been collecting expressions I’ve heard or used during negotiations since the start of dealfatigue; most recently updating the page, Lingua Franca last month. So I was pleased to discover Variety’s slanguage dictionary here.

Variety’s site is a comprehensive companion to Lingua Franca but lacks a number of words and expressions I’ve collected. So use them together as a resource and keep those emails coming so I can keep Lingua Franca timely and useful.

However, situational awareness is key to achieving consistently good outcomes in negotiations, regardless of leverage. The savvy Rep modulates her negotiation approach to conform to a given situation rather than the other way around. See my post on the importance of regularly watching Animal Planet here to learn how animals (including humans) instinctively do this.

What follows are a number of movies that portray agents and salesmen in roles a Rep typically confronts (or becomes) during negotiations. The movies are all critically acclaimed and enjoyable to watch. For our purposes though, the story lines are secondary to the archetypes of the characters.

1. Glengarry Glen Ross

Here’s Alec Baldwin’s motivation by dominance. “Always Be Closing”:

Contrasted with Al Pacino’s softer, I feel your pain and you feel my empathy approach:

2. What Makes Sammy Run?

Sammy must win even if he loses:

3. Broadway Danny Rose

Our instincts naturally pick up on Danny’s desperation vibe which only serves to work against him:

4. Swimming with Sharks

The Alpha in the room. Win by domination and dominate to win:

These archetypes shouldn’t be viewed as role models though I have to admit a fondness for Pacino’s portrayal. However, Reps (as well as principals) like those above abound in different permutations in the negotiation culture.

You need to be prepared to deal with them as the situation requires.

Most if not all negotiations are a combination choreographed dance, manipulation and fear of loss. The latter stems from our own inbred animal instincts which exert a strong influence over negotiations; even those where one side objectively has more leverage than the other.

From knowledge comes strength and while you can’t entirely eliminate fear from negotiations, the zen of knowing that it’s there minimizes its influence.

We spend an inordinate amount of time in service of our fear to our detriment. One of Seth Godin’s recent posts sizes it up nicely:

. . . . Chipmunks, wolves and other wild animals rarely get jealous. The number one emotion among wild animals isn’t vanity or happiness: it’s fear.

Fear is everywhere in the animal kingdom, because fear is a great way to stay alive. Fear is hard-wired into successful species… it doesn’t need to be taught. . . . An entire portion of our brain (the same brain the lizard has) is dedicated to fear. And it can’t wait to spring into action.

If your fear keeps you alive, embrace it. The rest of the time, the best strategy for success is figuring out how to ignore it, befriend it or use it as a compass to find what matters.

Seth’s use of fear as a compass really resonated with me. If you’re acting in the service of your anxiety then you’re probably not going to get the best result.

* Are you filling in awkward silences?

* Are you (pre?)-negotiating against yourself by offering an alternative fallback position before the other side has considered (and possibly accepted or rejected) your proposal?

* Are you being aggressive enough and asking for the Cinderella Deal or are you being too aggressive at the risk of killing the deal?

Here’s the litmus test:

If you’re ignoring your fears and taking a position that can be taken with reason, then chances are you’re being authentic and forthright. Your negotiations will, if not accepted, be perceived from the other side as strong if not tenacious and of earnest good will.

If not, then you’re not.

Everyone likes getting attaboys, including me. So I was thrilled that Wahab & Mednica’s Bizmedia Law Blog reviewed Dealfatigue in a recent post.

Iâ€ve been out of pocket of late but I will be posting soon. Until then, please check out the Best of Dealfatigue in the upper right of this blog.

Full Disclosure: Bizmedia Law and Dealfatigue posts regularly appear on the IP law web aggregator, entmedialaw.com.

Over the past 18 months, I’ve watched countless film projects rise, flounder and fall with the promise of financing. The prevailing wisdom is that things have gotten so bad with oil, gas and real estate investment that film finance actually looks like a safe bet for equity investors. Oh, if it were only so. Film investment for equity players continues to be a very risky play.

Although debt financing continues to be a dim prospect, Comerica Bank, Union Bank and National Bank of California continue to back certain films from reliable players. From my perspective however, the end of debt financing of motion pictures came almost three months after the collapse of AIG and Lehman Brothers when the US rescued the bank in mid-finance of a movie I was working on. The bank ultimately financed the picture though I like to think that the collective efforts of the lawyers, the bank executives and the producers involved had a hand in getting the deal done.

Depending on the day, sheer will to make things happen is either over-rated or under-rated. And so it goes with film financing.

I’ve reviewed countless Stand By Letters of Credit (SBLC’s), real estate investments restructured for film finance, Sole Trader deals out of the UK, nine figure film funds from – depending on the day – Vancouver, Taipei, Shanghai and New Jersey and sources of black box financing where, for reasons not entirely clear to me, the identities of the investors and the financing methods used are veiled in secrecy. Not one of these sources of financing has come through. For its part, black box financing may be illegal or even dangerous. In a post-Bernie Madoff world, you just can’t leave the risk of financial games to chance. Get transparency or don’t do the deal.

Some of these prospective investors may prove to be the real deal but at best, they are all long shots. Do your due diligence so you know who you’re dealing with, the sources of financing and whether the investor is prepared to provide you with references (i.e., prior projects they’ve financed) and proof that their funds actually exist through escrow or bank confirmation. Some financiers may be more forthcoming than others and at some point, given the limited resources of time, money, knowledge and passion, you may have to go with your gut in deciding whether to proceed.

I have to believe that a number of would-be film investors are earnest and either don’t know that they don’t have money to invest or get cold feet at the prospect of closing; while others may be lookey-loos who simply want to do lunch at The Ivy and play the producer game but really don’t have any money to invest.

But still they come with promises that entice producers and other creatives. Just make sure you don’t get stuck picking up the check.

Back in the 80’s, MTV was cutting edge. To many of us growing up back then, music videos were as much a part of the soundtrack to our lives as the music itself.

Inspired, my high school class produced its own music video; a lip syncing production of Devo’s We’re Through Being Cool which was seen by less than a thousand people at my school’s annual musical revue. [Note to Roslyn High alums, please send me a copy and I will post it here!]. Today, kids produce lip dubs in just a few hours and mass distribute them to millions worldwide through viral video websites like YouTube.

Here’s a lip dub of I Gotta Feeling by The Black Eyed Peas. A couple of kids from the University of Quebec, Montreal (UQAM) shot this video with 172 students in one take and one rehearsal.

Here’s “the making of” video of the UQAM lip dub [Subsequently blocked by UMG. I can’t figure why of the two, Universal Music Group chose to block the “making of” footage and not the lip dub itself. Updated: January 21, 2012]:

Here’s the original music video produced by The Black Eyed Peas.
I prefer the UQAM students’ take.

Of course, lip dubbing raises all sorts of legal issues concerning copyright, fair use and commercial exploitation of works owned by others. Apparently, the students didn’t clear the music though I suspect the cost of doing so would have been prohibitive.

So are mass distributed, viral lip dubs bad or good for the music business? The band? Do they cut into or promote market share? Do they dilute the promotional power of the band? [Ed. Note: Don’t ask me about this last one. I hear this argument from label reps every time I negotiate with them.]

With over 3 million hits on YouTube and publicity from news outlets and blogs like this one, The Black Eyed Peas could never have garnered that kind of exposure on their own. YouTube’s Audio ID program can link lip dubs and other user generated content on its website to online buyers of the band’s music. That kind of Internet exploitation should be music to the industry’s ears.

[UPDATE: January 18, 2010:] As reported on The Trademark Blog, Capitol Records sued Vimeo in Federal Court on December 10, 2009 for copyright infringement from the site’s exploitation of lip dubs.

Complaint Capitol v Vimeo

According to The Trademark Blog, Capitol needs to persuade the Court not to follow Io Group v. Veoh or UMG v. Veoh. These cases held that file sharing services like Vimeo are not liable for the creative (and arguably infringing) activities of their users.

As I wrote earlier, the music industry needs to have an honest and public discussion about whether such uses actually promote or dilute the value of their works. So far, I haven’t seen any proof one way or the other. In the end, it might not matter. People will continue to find creative and novel ways to exploit existing works despite the risks. It’s incumbent on the music industry to figure out a way to squeeze some profit for themselves out of that.

Every year, I take on at least one intern to work in my office. I expect them to do quite a bit of scut-work and provide support to the office.

In return, I let them see and hear what it’s like to negotiate and litigate in the entertainment business. The reps on the other side of the deal are usually gracious enough to allow the interns to listen in on conference calls and the interns attend depositions, hearings and settlement conferences when we’re involved in litigation matters.

I also require my interns to complete a reading and viewing list and be prepared to discuss it with me during the course of their internship.

Here’s the first in a series of what was on last summer’s list in no particular order:

Animal Planet

Everything (ok. well, not everything) I know about the entertainment business I learned from watching Animal Planet.

All negotiations (indeed, most human interactions) can be reduced to basic animal-like drives and instincts. Like the clip here between a male and female bear or the bull moose locking horns below, negotiations involve the struggle for dominance and submission.

Watch it. Really. Trust me. Once you understand that negotiations are really driven by human behavior and human needs, you can increase your ability to address the needs demands of the opposing party without giving away the store.

Next: Glengarry Glen Ross

Despite all of the self-help books preaching the contrary, people have a hard time living outside the moment. So, it’s difficult for them, let alone a whole industry to shake the mindset that the current ecology of the business will continue to be bleak forever. But this sour economy is just a part of a normal business cycle which will pass.

Eventually.

If we’re willing to wait. And survive while we’re waiting.

Will the business be the same? I doubt it. It will be continue to evolve as it always has in the film business. A decade ago, insurance-backed financing was all the rage. Then came sale-lease back deals from the UK, investment from German film funds and most recently, private equity and hedge fund financing. Those were good times. Good times.

However, dramatic, paradigm shifting change – the kind of change required to modify an outmoded, global business model created decades ago and move entrenched players with special interests – requires what Nassim Taleb calls a Black Swan event. Like a rare black swan, nothing less than an impropable sequence of events like limited access to credit, labor unrest, rampant piracy, the rise of the Internet and the collapse of distribution windows and the pre-sales market can bring about meaningful change to this business.

Even so, the fundamentals of the film business remain. People like good movies, especially those with good stories and high production values. And there remain untapped distribution channels in emerging markets and emerging technologies. Where there’s a demand for something, there will always be a business.

Bill Mechanic, a key player in the studio world and now, the independent movie business put it best in his keynote at the IFTA’s annual Producer’s Conference back in September:

The independent world, which should be aiming to do things better and different from the studios, doesnâ€t have that as a mandate at all. If anything, the only thing that independent distributors and financiers look for is the same. Maybe costing a little less than the majors, but they want what the studios want, or in Fight Club-speak, they want copies of a copy.

* * * * * * * * * * * * *

In that way, Hollywood in the broadest sense of the word is much like Detroit. Itâ€s a manufacturerâ€s mentality that reigns, seemingly indifferent to the consumers it serves. Ignore whether the consumer likes our product as long as they buy it.

* * * * * * * * * * * * *

The next 2-3 years will be even worse, not because of the flood of new releases, since that is already abating, but rather due to the effect the over saturation has had combined with the economic downturn. New money is going to be hard, if not impossible to find. Ad sales are down, so TV networks around the world, other than cable, arenâ€t buying. Add in a confused video market, and itâ€s going to be tough. To my mind, the next few years will be about survival.

* * * * * * * * * * * * *

. . . [A]lot of waste is going to be cleared from the marketplace. Excess product will go away, the people who donâ€t take the business seriously will go away. Hopefully those who make crummy movies will also go away, but that may just be a personal wish.

* * * * * * * * * * * * *

[The film business] is a game for winners. And those who win today will win to an even greater extent than at almost any point in the past. . . . Those who will win will be smart about what they make and how they sell their films. They will hopefully make good films but perhaps even more key they will make unique films that stand out, which means they will not have to compete against the bulk of the films for talent. They wonâ€t look like all the other films so they wonâ€t have to spend as much money marketing them.

Itâ€s not that the buyers arenâ€t there. Consumers, TV outlets, retailers and, yes, even pirates want what works. Donâ€t believe me? Ask Summit about Twilight. Ask Searchlight about Slumdog Millionaire. Ask Screen Gems about District 9. Ask Focus about Coraline.

The takeaway? To get through this down period, be good, be different and as Tim Gunn says, make it work!

To read the complete transcript of Bill Mechanic’s keynote speech and some really informative reader comments click here to Nikki Finke’s blog.

Last year, procrastination got the best of me and by the time I got around to the annual pumpkin purchase on October 30th, the supermarkets were out of all but the most damaged pumpkins. I was left with no alternative than to deal with the local Pumpkin Patch Guy (a/k/a the Christmas Tree Lot Guy).

Some might say I was merely on the wrong side of supply and demand. But sitting on his throne of hay bales, Pumpkin Patch Guy went beyond aggressive deal making. He was ripping me off.

I should of walked away but it was late and the kids were tired. Feeling like a rube, I pulled out my wallet and gave him forty bucks for a couple of sad looking pumpkins plus another ten for the carving kit. This year, I got smart and didn’t go back. I planned ahead and procured my pumpkins at a substantial discount.

Like Pumpkin Patch Guy, a rep has a fiduciary duty to maximize value. But does that always result in doing what’s best for the client? Maybe so if it’s about short term value (it’s about the upfront money, stupid!).

But what about over the long term? Pumpkin Patch Guy lost me as a repeat customer by gouging me simply because he could.

Effective negotiation and deal making often require more than selling to the highest bidder. In many cases, the parties involved have to be able to work together over the long haul (e.g., SAG and the AMPTP).

Good will and occasional restraint by the stronger party can go a long way to salve the pain of accepting unpopular deal points by the weaker player. You’re not looking for a love fest here; merely a path towards building trust over subsequent negotiations.

Pumpkin Patch Guy might have earned my continued business if he’d thrown in the carving kit or a coupon for future discounts; something, anything to make me feel better about being gouged. SAG and the studios might have been able to change the discordant tone of their negotiations by simply finding more common ground through the exchange of ego nickels. Now, months after SAG sealed its deal with the studios, there continues to be profound polarization between the two camps and their supporters.

Does negotiating an arguably more fair deal really create momentum and good will for the next or does it betray weakness in your position? Does aggressive negotiation help, hinder or have no effect on the next deal? Whatever your approach, it pays to consider whose ox is ultimately getting gourd.

I decided not to attend the Cannes Film Festival back in May because of the dismal economy and what I expected to be a poor showing there. I learned things were even worse than expected when my colleagues in distribution reported from the near-empty beaches of the Cote d’Azur that the bottom had fallen out of the pre-sales market.

The Toronto Film Festival was supposed to be different. Four months after Cannes, with the banks flush with TARP funds and individual investors reportedly swapping oil and gas investments for classic cars, surely an uptick in motion picture finance had to be right around the corner.

I thought that Toronto would present a sea change in the degrading economics of the business; that the credit markets would thaw; and the cash equity of retired Silicon Valley and Wall Street insiders, the Chinese, the Indians and institutional investors would make the trek up to Canada in droves.

But Toronto felt like a bad dream about a big party that everyone attends but the host forgets to cater. People took meetings, did lunch, partied, went to screenings and generally did the things one does at a film market except buying, selling and investing in films. All of the elements for a successful market were there except cash. The money, it turned out, stayed at home.

Looking back at it now, I was overly optimisitic but hardly alone in my rosey outlook.

Yes, there were well-publicized exceptions to the lack of a market at the market. However, to the rank and file independent producer, the prospects remained bleak. Although the independent film business has been subject to business cycles in the past, many I spoke with in Toronto believe that business won’t bounce back to pre-recession levels.

The Internet is the double edged sword at play in any recovery. On the one hand, the Internet provides new sources of distribution revenues through streaming and digital downloads. On the other hand, the Internet’s ability to stream content is eroding traditional exploitation windows and risks shortening the profitability period for the typical commercial motion picture.

Still, the credit markets continue to thaw, albeit slower than many anticipated. New distribution models are rapidly evolving and with it, new deal points in the licensing of distribution rights.

And . . . the American Film Market is less than two months away. Maybe, just maybe then, producers will finally be able to get the money shot that they’ve been waiting for.

As with the Internet, cyber-squatters are hording the names of celebrities and other well-known people on Twitter. Some are even going so far as to pose as fictional characters like Don Draper from Mad Men.

If you’re an actor, be sure to register your name on Twitter while it’s still available (if it’s not too late already).

In this age of self-branding and the rising reliance on the Internet by the public at large, the famous and the famous to be need to maintain control of their names especially on social media sites like Twitter, Facebook and MySpace.

Twitter’s policy is to shut down fake Twitterers, most notably an ersatz Christoper Walken. However, there are exceptions to Twitter’s practices.

As reported in The Hollywood Reporter and elsewhere, CNN recently had to pay to recover the Twitter name “CNNbrk.” Let’s not even think about the attorneys’ fees.

Do not pass Go. Get your Twitter name now for free or pay later! [Thanks to Stephen Strauss for the heads-up on this one!]

DealFatigue is now being featured on entmedialaw.com, a website that aggregates legal and business writing specific to the entertainment industry.

A little less than a month since its launch, entmedialaw.com is already bringing an impressive network of people together who focus on entertainment law, deal making and the business culture of the entertainment business including Gordon Firemark, Jonathan Handel, bizmedialaw.net and feeds from The Legal Satyricon, Anne Thompson and others.

It takes a lot of web surfing to keep up with the ever changing legal landscape of the entertainment business but entmedialaw.com is poised to bring all of it to you in one place.

Check it out and let me know what you think.

Variety‘s Dave McNary reported that the Screen Actors Guild’s national board just approved a tentative two year deal on its film-TV contract, triggering a ratification vote by the guildâ€s members on June 1st.

As McNary writes in today’s Variety:

Should the deal be approved by members, it will extinguish what’s been a nagging uncertainty for the business for the past year. Production on film and TV was thrown off-kilter by the writers work stoppage, then by studios’ and nets’ fears that a SAG strike might emerge. During the period of uncertainty in the fall, control of SAG’s national board shifted to a moderate coalition, while the economic crisis helped create a big slowdown in local feature production. (First-quarter off-lot activity in Hollywood was at an all-time low.)

The terms of the new deal are generally the same as those the networks and studios agreed to with the WGA, DGA and AFTRA. That means that all of the guild’s protracted stang und drum sturm und drang was a waste of time and may have even hurt SAG’s chances to assert jurisdiction over all television programming.

SAG and AFTRA have joint jurisdiction over dramatic television and most television actors are members of both unions. The networks saw an opening and took it by entering into TV agreements with AFTRA instead of SAG. For the first time in 30 years, AFTRA split from SAG and negotiated its primetime contract without SAG. By doing so, the networks scored a twofer by fostering discord between and within each union and averting any threat to TV production during a strike.

Effective negotiating requires unity between and amongst the rep and the represented. This is all the more so when the represented are a large number of people (in this case, 120,000), each with different goals, motives and fears.

Group dynamics assumes that there’s always going to be dissent amongst a large number of people seeking a common goal. The WGA had similar difficulties during their negotiations with the AMPTP. However, a large group still requires a broad coalition of support before it embarks on any negotiation. In this case, SAG’s current board came to power in the middle of these negotiations and only holds a slim majority.

Given that, infighting between guild factions doomed these negotiations from the start; drawing off much needed focus and consensus away from the negotiations and towards addressing dissenters objections to the point of distraction. The AMPTP likely concluded that the best tactic for them was to stay largely mum lest they provide guild factions with any common ground on which to unify.

And now that SAG’s national board has approved the deal terms, it’s still far from over.

In the weeks to follow, SAG president Alan Rosenberg and his MembershipFirst faction have vowed to continue their opposition to the current proposal in an effort to get as many no votes from SAG members as they can. Although the consensus is that passage of the current proposal is all but assured, Rosenberg and company are reportedly setting the stage for next fall’s election of SAG’s leadership. This tactic has already proven to be self-destructive and will accomplish nothing other than to further weaken the union and any chance it may have at unification.

As it is, SAG should have postponed negotiations until it developed consensus within its membership and its leadership. Common ground is the cure here. This isn’t Monday morning quarterbacking; it’s common sense.

Expiration of SAG’s new agreement concurrent with the WGA, AFTRA and the DGA’s agreements was one of the most important concessions the guild was able to obtain from the studios. With all the creative unions’ deals expiring at the same time, they’ll be strength in numbers and an opportunity for a unified front based on a set of common goals. Although many SAG members believe they may have lost this battle, with that kind of formidable alliance, SAG may ultimately be in a position to win the war.

My blog broke during a WordPress upgrade in mid-January. Even so, I’ve been writing posts but couldn’t publish them until now.

Now that the fix is in, I will publish these posts over the next week or so instead of all at once here and here.

Piecemeal publishing makes the content last longer.

Make sure you scroll down to catch up.

There’s been quite a bit of up-selling of independent pictures in Hollywood.

With the box office success of Slumdog Millionaire, indie films are the new darlings of the movie business after decades of being relegated to the wilderness of limited theatrical distribution and even more limited marketing budgets.

Seeking to capture greater market share, the majors absorbed distributors like New Line Cinema and Miramax years ago.

However, the studios never expected that their independent labels might produce pictures that would threaten to cannibalize their tent-pole productions.

Patrick Goldstein recently wrote in The Big Picture blog about Slumdog’s surprise performance and its likely chances of getting an Academy Award here. [Ed. Note: Goldstein’s post has since been removed but can now be found here].

After all, the irony of all ironies is that after giving “Slumdog” the bum’s rush, Warner Bros. spent millions running a best picture campaign for “The Dark Knight,” the highest-grossing film of 2008, which still ended up being largely ignored by Oscar voters, who failed to give it a best picture, best director or even a best original screenplay nomination.

* * * * * * * * * * * * *

The sad truth is that most studios today don’t have the patience, the artistic desire or the skilled manpower to release a film like “Slumdog.” My guess is that Warners, having unloaded all of its specialty divisions, both Picturehouse and WIP, eyed its little gem (made for a paltry $14 million) and said–even if we put in months of painstaking work, it’s at best a double (industry parlance for a modest hit). Like most studios today, Warners is an assembly line, built to swing for the fences, eager to make mega-hits like “The Dark Knight” or “Harry Potter,” which not only make far more money but feed the studio’s valuable ancillary markets.

Warners is not alone. 20th Century Fox has little in the way of artistic ambitions, preferring to hire no-name directors, leaving the Oscar game to its Searchlight subsidiary. The same goes for Disney, which is happy to let Pixar take home a best animated film statuette and let its tiny Miramax subsidiary, which spends a fraction of the money it did when Harvey Weinstein was at the helm, play in the awards sandbox. Even Sony, which used to avidly pursue awards, has largely given up, preferring to pursue more commercial goals.

It’s a great article and I was with Goldstein until he wrote:

Of this year’s best picture nominees, only two were made at major studios: “The Curious Case of Benjamin Button,” co-financed by Paramount and Warners, with Paramount distributing, and “Frost/Nixon,” which is distributed by Universal Pictures. “Slumdog,” along with “Milk” and “The Reader,” were financed outside the studio system or by specialty companies. More importantly, if you look at the recent best picture winners, they are invariably made by fiercely independent filmmakers who rarely take their cues from the studio system.

The Coen brothers, who directed last year’s winner, “No Country for Old Men,” are so leery of Hollywood that producer Scott Rudin had to cajole them into even coming to town for a few glad-handing events. The same goes for Martin Scorsese, a lifelong New Yorker who directed “The Departed,” the winner in 2007. Paul Haggis, who directed “Crash,” the 2006 winner, lives here, but as a director operates just as far away from the studio system as Scorsese or the Coens. Clint Eastwood, who won in 2005 with “Million Dollar Baby,” is the ultimate outsider, making his movies with the same crew in the same quiet fashion, brooking little interference from any studio suit.

While I am pleased to see that American (and global audiences) are demanding more sophisticated fare, I demurred in the comments section of my client, Jonathan Wakeham’s blog on film @ mastersvo.com. I wrote that:

Although it may be true that these pictures were independently financed, such financing was likely based on the producers having US theatrical distribution in place prior to principal photography. US theatrical distribution essentially drives the value of foreign distribution rights up increasing the likelihood of financing a project.

For all their laudable (and at times, edgy) works, Scorsese, Rudin, Eastwood and even Haggis are part of the Hollywood establishment. Their involvement in a project can easily (relatively speaking) drive financing of a project. Saying that these pictures are truly independently financed . . . is like calling a wolf in sheepâ€s clothing a ewe.

While Slumdog is not a litmus test of what truly independent projects can accomplish given meaningful theatrical distribution and a real marketing budget, it does prove that audiences have a big appetite for original stories in an industry that insists on being increasingly derivative and increasingly risk-adverse.

And that’s a pretty happy ending in itself.

My kids turned me on to “Charlie The Unicorn” shortly after it made its debut on youtube several years ago. Like most user generated content, Charlie, a flash animated 2D short, was made on a shoestring and the production values reflect that. Still, the work is smart, funny and quotable in the vein of Caddyshack and The Simpsons.

Charlie has been viewed over 35 million times worldwide and spawned a sequel.

Still, I wasn’t really intrigued until I visited Hot Topic, a teen-oriented store in my local mall, and spotted Charlie merchandise.

Plenty of talented (and not so talented) folks make shorts and distribute them on youtube. Far fewer generate millions of views or eyeballs; and only a handful of those successfully make the jump to ancillary exploitation.

Whether Charlie’s creator is making meaningful revenues isn’t really the point (nor is the aesthetic value of such a work).

Charlie’s transition from youtube short to retail merchandise represents nothing less than a sea change in the ability of a single content creator to leverage the internet and its potential access to millions to build a following and potentially profit from ancillary and derivative exploitation of content without the need or prohibitive expense of traditional distribution channels.

It means that self-distribution is now a meaningful and sustainable distribution alternative and will become even more so as internet based distribution (e.g., faster downloads) matures.

It means that traditional distributors better figure out how to stay relevant (hint: content marketing not content distribution) or get out of the way.

Just ask the people who (used to) work in the music business.

The “One Laptop per Child” Foundation released a television commercial on Christmas Day of John Lennon – almost 30 years after his assassination – pitching viewers to buy laptops for poor children.

The Foundation produced the spot using digital technology; creating an ersatz version of Lennon saying “I tried to do it through my music, but now you can do it in a very different way. You can give a child a laptop and more than imagine, you can change the world.”

Variations on the technology have been around for years. Michael Crichton predicted the advent of the technology in “Looker” in 1981. In 1995, I cited Crichton’s work when I wrote about the use of digital technology to reanimate deceased celebrities in new works – and the possible legal complications – here.

Although the ethical and business dilemmas of using digital automatons instead of real actors are still in flux, the legal issues remain the same. The commercial exploitation of dead celebrities requires the consent of the celebrity’s estate. In this case, Yoko Ono, Lennon’s widow approved the spot.

When I wrote my article in 1995, the infinite possibility of the internet was largely unknown to the public. Our understanding of its potential now combined with advances in digital reanimation technology will only bring these issues to the forefront.

You can find out more about One Laptop Per Child’s donation program here.

Pickle Magazine, a film industry publication based in India about all things Bollywood and now, Hollywood, recently asked producer and sales agent, Ron Lavery to interview me and ten others for its American Film Market edition. After reading all eleven interviews, it’s clear that none of us agree on what the long term and short term effects will be on the film business given the latest seismic shocks (and those to come) to the overall global economy. Here’s my take:

Lavery: How do you think the current economic situation will effect AFM business this year?

Me: The entertainment business, like most businesses runs on credit. Although there appears to be a credit thaw . . . if the financial environment gets worse or even if it continues to improve at its current pace, the credit freeze will definitely affect AFM business this year. With limited access to the credit markets, buyers will be less inclined to close deals and will have limited buying power in the short term. Over the longer term though – and Iâ€ve already witnessed it first hand – private equity will step in to do more traditional debt financing (albeit at a premium) if the banks are unable to do so.

Lavery: Do you foresee any mergers between distribution companies?

Me: Yes. Although mergers are already a part of the overall trend towards the consolidation of the business, the current economic climate will only accelerate this process.

Lavery : Are there any news ways of financing films on the horizon?

Me: Over the last decade and longer, people have been and continue to try to build a better film financing business model as the economics of the film business shift. This process will likely [continue to] shift at a tectonic pace especially if credit remains tight, the costs of production continue to rise and equity sources dry up. With the Internet as a potentially new distribution platform with untested sources of revenue based on either a subscription model (which wonâ€t work) and advertising (which might work if the revenues become more meaningful), Internet exploitation windows may become a more significant revenue source for producers and distributors.

This is especially true now that that the technology exists to “geo-filter” the exploitation of films on the Internet on a territory by territory basis.

Electronic sell-through of video units of films may increase the value of minimum guarantees since the Internet will allow producers to have greater access to mass markets for their films during the video exploitation window. In some cases, producers may be able to directly distribute their films without an actual distributor just as artists have in the music business, thereby saving on costs by eliminating the middleman.

What is even more interesting is that short films are rising in commercial appeal.

Long relegated to film festivals, new distribution opportunities have developed on the Internet and on mobile phone and Ipod technologies for shorts. As a consequence, producing shorts are good for business since they have lower budgets and can now attract marquee talent who view internet exploitation as a cutting edge business opportunity that provides potentially great exposure with minimal effort.

Lavery: Will the economic crisis effect government subsidies and tax credits?

Me: With the drop in income here in the United States (and a corresponding drop in tax revenues), each locality is looking for new ways to attract revenues, jobs and new industry to each of the States but [they are also] forced to contend with a corresponding drop in tax revenues by virtue of providing the tax subsidy itself.

Meanwhile India, the Middle East, Eastern Europe and China will continue to be appealing places to produce films which might not provide tax credits per se but . . . increase the potential bang for the buck.

Lavery: Any thoughts on the enormous impact Indian film companies seem to be having on American film companies?

Me: While the current economic climate is adversely affecting the global economy, India is viewed by many in the entertainment business as a potential source of new financing as opposed to talent. The good news for Indian film companies is that if India is the source of financing, then there might be increased leverage to utilize Indian talent in American films.

The other factor is the increased reliance on foreign sales of American films which right now hovers around 60-65% of the budget of the typical mainstream American film. This in turn requires . . . increased reliance on foreign talent in an effort to increase the appeal to foreign audiences.

Lavery: Any thoughts on Indian financing opportunities like the recent Spielberg-DreamWorks deal?

Me: The Spielberg-Reliance deal is viewed by many as the high water mark of Indian investment in film. The good news is that other film funds do not and will not require market capitalization to this extent. I expect the formation of several Indian and Asian based funds with more modest capitalization ranging from US$35 million to US$80million in the near term provided economic conditions do not seriously deteriorate.

Venture Capitalist, Sequoia Capital put together a simplified slide presentation on start-ups and the economic downturn.

Less is more and this presentation simplifies a lot of the complexity of the current economic mess we’re all in. Be sure to check out slide #21 for the take away.

Many thanks to Fred Wilson’s blog A VC for alerting me to this.

The Coen Brother’s Burn After Reading starring George Clooney and Brad Pitt is an awful movie that, despite being awful has been critically acclaimed (for the most part; my opinion notwithstanding). The budget for the picture was $37 million and as of this writing, has already grossed over $57 million during its theatrical release. The picture stands to make substantially more when (and if) it goes into wider theatrical release internationally and through ancillary exploitation on video and pay/free TV.

This disconnect of a mediocre film doing well at the box office got me thinking of my UK client Fred Hogge’s post on his blog cinelogic about how box office success builds audience interest regardless of the merits of a particular motion picture. With respect to the interest in the latest Batman sequel, Fred said:

The Dark Knight, just won big. Sure, it helps that they opened on over 4000 screens, but people are excited to see it. The reports coming back from those that have are overwhelmingly positive. So more people will go. And this is regardless of all the side-bar hype, largely focused on the late Heath Ledger, his death having, sadly, been turned into a marketing tool.

I responded that:

The general public follows weekend B.O. performance like a Wall Street stock index for one simple reason. People like horse races and the weekend box office is just that. This isn’t about quality pictures; it’s about “who’s winning now.” B.O. stats used to be restricted to Variety and other trade publications. Now they’re found in virtually every major news source around the world (at least those in countries that distribute motion pictures from the West).

To be sure, more people will buy tickets to a movie based on a horse race mentality because they “heard” the movie was good (just based on the initial B.O.). The fact that the horse race might be a fiction or, to be more charitable, of limited use as a barometer of [sic] quality picture is largely irrelevant to most of them.

There really is no accounting for taste. Which is why bad movies with “bankable” stars are easier to finance and distribute than high quality, material-driven pictures with little or no recognized talent attached. Indeed, that why Beverly Hills Chihuahua was – as Variety put it – “top dog at the box office” this weekend.

Then again, it might be really, really good despite the bad reviews. I’ll have to see it and get back to ya on that.

No matter our behavior, the economy fluctuates from boom to bust on a fairly predicable basis. However, the severity of a bust is based in part on group (read: global market) psychology and bad, unregulated choices (don’t get me started on so-called “free market” thinking!).

Right now, the group think is pretty pessimistic and we’re in dire need of the equivalent of a global prescription for Prozac. A downturn is not a question at this point; only the extent of the damage and the timing of the recovery remain up for grabs.

The bail out measure before Congress will by no means prove to be a panacea. I keep hoping they will find a better way since the legislation – despite all the money – will not alter the landscape of losses or willingness to lend. However, it will remove a barrier to lending and mitigate some of the negative thinking. So, the sooner Congress works it out, the better for all of us.

I was recently assured by an elder statesman in the business that the industry will continue to flourish as it has in prior recessions and during the Great Depression since people continue to spend on entertainment as an escape from bad news. Peter Bart smugly approved in his column in Monday’s Variety:

Compared to the turmoil on Wall Street, Hollywood seems like an object lesson in prudent management. That’s why billions keep flowing into the movie business even when other industries are starved for capital.

OK, I know that’s really not the reason. Sucker money traditionally flows to Hollywood because investors want to meet girls, attend parties with movie stars and say they’re business partners with Steven Spielberg. Nonetheless, it’s still surprising to count the big bucks involved in the DreamWorks deal or in Ryan Kavanaugh’s Relativity Media or in Media Rights Capital’s portfolio at a time when the rest of the economy is locked in a liquidity crisis.

Suddenly, Hollywood’s managers seem downright austere compared with the crazies at Lehman Brothers. And movie-star salaries are pathetic relative to Wall Street payouts.

I’m not sure I agree since the entertainment business – like most businesses – requires access to credit to run. MGM is already struggling to service its existing debt and like the banks and other financial businesses, may be unrecognizable from its present form down the road.

Even before the current market crisis, Dave McNary wrote in last week’s Variety :

Start with plenty of labor unrest, add in the global credit crunch along with the consequences of too many movies in the market, and combine that with foreign distributors getting cold feet for anything but blockbuster Hollywood product.

“Any one of these factors would depress the business, so having all of them at once was something of a perfect storm,” notes Charles Heaphy, senior VP at City National Bank’s entertainment division. “This is like being in a rowboat while there’s a hurricane going on.”

With respect to startups, Jason Calacanis wrote:

Itâ€s my believe [sic] that the economic downturn will be much worse than it is today, and that 50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.

Make a list of every Web 2.0 startup to raise an A or B round and cross 80% of them off the list, because they will not make it to their next round of funding or profitability.

Tough times like these will require media and entertainment companies as well as startups to rethink their strategies for investment and growth for the foreseeable future.

It all sounds really, really bad.

It’s not enough that it’s hard to finance movies or a good idea; contend with getting distribution or vacillating VC’s; now you’ll have to work that much harder to even find potential investment let alone actual investors.

But the news may not be all bad. Money abhors a vacuum. There’s a lot of money out there sitting on the sidelines and plenty of people looking for places to put it; some of it from the most unlikely of places.

I’ve spoken to personal money managers whose sole duty is to make at least 20% on client money in good times and bad. Some of this money previously invested in oil, gas and securities but with these markets in turmoil, these investors are now looking for new investment opportunities. If bank financing dries up, private equity (e.g., hedge funds) – already a big player in motion picture financing – will likely replace it. Moreover, I recently had several discussions at the Toronto Film Festival and elsewhere with several emerging market financiers who all viewed the current US economic situation as a unique investment opportunity.

Let’s hope their optimism is contagious.

A friend of mine was fired last week.  Nothing unusual, given the current economic climate unless you consider that he was terminated from his own company.

“B” started the business several years ago.  As time passed, his company prospered and he was able to open a second office and then a third.  Later this year, he successfully sold his business to another company with the understanding that he, along with his employees would continue working at his newly acquired company.

I don’t rep him and don’t know any of the particulars of his deal which leaves me free to speculate about it here.

Buyers frequently require that founders remain with an acquired company for a period of time as a condition of purchase. Aside from assets and revenues, often what a buyer is buying is the founders’ good will, business relationships and brain trust. So it’s good business for the founders to continue working with the company after it’s acquired by someone else. Unfortunately, it’s been my experience that such arrangements rarely if ever work in practice because of a clash of cultures and a fundamental mismanagement of each party’s expectations.

1. Founders hate “working for the Man.” That’s why they went off on their own in the first place. Founders are by definition entrepreneurial so they naturally resist taking cues from someone else about how to run – what was until recently – their own company.

2. Buyers want the entrepreneurial benefits of independent thinking without its costs which can be based on erratic, random and emotional factors.

3. Founders take risks; they execute. Gut feelings can outweigh financial and legal risks. (See #2 above). However, they can be horrible team players especially when they’re no longer the quarterback. (See #1 above).

4. Buyers tend to be more organized and institutionalized. They tend to integrate uniform and consistent protocols ranging from hiring practices to the brand of coffee in the break room.

I like to think that both parties have only the best of intentions about working together but it behooves everyone to plan well (and negotiate accordingly) for divorce prior to taking any merger vows.

There’s nothing new about lying during negotiations. Almost sixty years ago, Budd Schulberg wrote What Makes Sammy Run, a novel about an agent who lies to get ahead in the movie business. There have been a number of other works published or produced on the subject as well. More recently, I wrote about it here.

Then as now, negotiating is nothing less than a confrontational (and largely, animal instinct-driven) struggle for limited resources. There’s only so much pie to go around and a rep wants the client’s slice to be as big as possible; not just for the deal on the table but to set precedent or the quote for other deals down the road. These precedents greatly influence, if not become the floor to subsequent negotiations, taking into account the project’s budget and vintage of the quote. Agents, managers and sometimes, lawyers have an added incentive since their fees are based on a percentage of what the client makes on a particular project.

It’s only natural then that some reps feel that they have an absolute obligation to their clients (and to their law firms or agencies) to maximize their slice-to-total-pie ratio even if it means lying to the other side about a material term.

I suspect it was that desire that recklessly drove one particular rep to repeatedly lie to me about his client’s quote during negotiations; the first time by more than double the actual quote.

The rep stalled over days when I asked for documentary backup to the quote (a pro forma request usually provided on demand or verbally confirmed by the studio or network business affairs exec who initially put the quoted deal together). And when the days of stalling turned into weeks, I suspected the worst and only pressed harder. He ultimately confessed that he had misquoted the figure and that his client’s quote was really [a number that was about a third more than the actual figure].

I was furious. When I insisted on seeing the prior deal, the rep had the gall to blame me for drawing negotiations out.

The rep’s actions were particularly dumb since a quote is one of the easiest things to verify. When I told the story to R, a manager, former agent and friend, he laughed and said cynically, “he should have only lied to you about things you couldn’t check.”

Ultimately, the debacle left my client with substantially more leverage and the moral high ground to close the deal on more favorable terms.

“So why am I still angry?” I asked.

“Because you caught him lying and had to do something about it.” R said.

This business is based on trusted relationships meticulously built over time. Like deals drafted on a napkin over lunch back in the day, a rep’s integrity and reputation can still go a long way to closing deals faster and on better terms today.

In contrast, lying makes deal making harder; can polarize the parties; and makes the negotiations feel more like protracted litigation. Lying can kill a deal and, even in the best of outcomes, slow things down.

In this instance, we were lucky. The rep’s lies (not to mention the endless delays caused by his stalling) ended up costing our clients only time and money. It cost the rep much, much more.

In the early 90’s, I occasionally played in a monthly poker game. The regulars were all guys; mostly lawyers; mostly working in the entertainment business. One of the regulars was a guy named Joey DeMarco.

Joey was working in business affairs at Fox (and later, Fox Searchlight) and was a rising star at the studio. Although the location varied, I seemed to play most often when he hosted the game. Joey lived in a large house on Stone Canyon near the Bel Air Hotel. Despite the impressive zip code, the decor was decidedly single straight guy with a set of weights and a bench press prominently on display in the living room of the 1940’s ranch house.

The vibe was more “Lord Of The Flies” than a friendly game of poker and on the nights in which I played, Joey dominated if not controlled the game. He clearly knew the odds of each hand and usually did quite well against the rest of us. Joey often had the cards to beat; and when he didn’t, he was quite good at bluffing. Even when you were sure he didn’t have the cards, you dare not call him on the bluff. He was so good at it, that you usually doubted your own judgment.

I negotiated against Joey only once and it was years after I stopped playing in the game. Given past experience, I braced for what I thought was going to be an aggressive negotiation with a formidable alpha-male. He surprised me by being straightforward and fair from the very start. Joey didn’t try to dominate or bluster through the open points and we “got the deal done” in short order. Later, I learned that the tone of his negotiations was more the rule for him than the exception.

Joey died two weeks ago at the age of 48. Although it’s doubtful that I will ever be as skilled a poker player, I will aspire to be just as good a negotiator as he was. Joey epitomized skilled negotiating without the need for hostility or dominance. For him, the best negotiating didn’t need to feel like negotiating at all and it was OK if everybody left feeling like a winner.

Still, every good negotiator needs to be prepared for any contingency. I missed the funeral but was told that his poker buddies placed four playing cards in his grave: an ace-king suited for high hand and a deuce-seven for the bluff. Just in case.

Some time ago, a client called me to apologize for not taking my advice on a deal that ultimately went bad for her.

“Alright” she said. “Let’s get this over with. Tell me you told me so.”

“No,” I said. “We discussed the risks, you considered my advice very carefully and then you made your own decision.”

A rep’s judgment should never in itself become a substitute for your own judgment. As between the rep and you, you alone will likely have to live with the consequences.

Most big decisions in this business (and in life) are a crap shoot; there’s rarely a bright line to follow. However, there are a few things you can do to increase the odds in your favor.

1.     Surround yourself with smart people of good will (that’s by far the hardest part). Look up the word “supportive.” It doesn’t mean working with reps who are yes men and it doesn’t mean silencing their dissent. However, it does mean ensuring that your reps are acting in your – not in their or someone else’s – best interests. See e.g., Iago in “Othello” or more apropos, Sammy in “What Makes Sammy Run?”

2.     Actively seek out your reps’ counsel. Don’t assume their silence means that they approve. They might just be inattentive, lazy or misunderstand their role in the decision making process.  If so, go back to step #1. Consider the risks, benefits and alternatives that they provide (as well as your own take).

3.     Then and only then make up your own mind.

And if you screw up against your reps’ best advice, that’s OK. Everyone screws up at some point.  But your reps better still be there for you to help clean up the mess.  That, and their good counsel is what you pay them for.

Of course, if anyone doubts that, just tell them I told you so.

I recently called four actors about a potential gig on a television series.

Only one of them got back to me. Four days later. By email.

All of them, without exception, regularly complain to me about the lack of work in L.A. and now, all of them, without exception, were missing an opportunity to work in their field. Worse still, I might not call them next time.

It’s possible that the opportunity wasn’t right for them.
Or they each had scheduling conflicts.

Or, they each just got in their own way.

Call it audition fatigue. The continuous, consistent rejection inherent to the profession is bound to erode the motivation and enthusiasm of even the hardiest of thespians.

I’ve seen the same self-defeating behavior in lawyers, agents, production executives and other so-called “suits” in the business. Recently, I received a resume by email in response to an opening with my law firm. The resume arrived in a word.doc format which when opened, was covered with very visible, “red-lined” changes clearly revealing that the job seeker’s CV was based on someone else’s resume.

If you’re going to take all the time, effort and expense of putting yourself out there, you might as well follow through by taking just a bit more time and a bit more effort to do it right the first time (in the above case, by removing all the metadata before sending or better yet, attaching a .pdf file to preserve formatting). In the short term, that old saw is true: you never get a second chance to make a good first impression.

Marc Andreesen, co-founder of Netscape and developer of the first widely used web browser recently raised similar concerns in his blog:

Opportunities that present themselves to you are the consequence — at least partially — of being in the right place at the right time. They tend to present themselves when you’re not expecting it — and often when you are engaged in other activities that would seem to preclude you from pursuing them. And they come and go quickly — if you don’t jump all over an opportunity, someone else generally will and it will vanish.

I believe a huge part of what people would like to refer to as “career planning” is being continuously alert to opportunities that present themselves to you spontaneously, when you happen to be in the right place at the right time.

* A senior person at your firm is looking for someone young and hungry to do the legwork on an important project, in addition to your day job.

* Your former manager has jumped ship to a hot growth company and calls you three months later and says, come join me.

* Or, a small group of your smartest friends are headed to Denny’s at 11PM to discuss an idea for a startup — would you like to come along?

I am continually amazed at the number of people who are presented with an opportunity like one of the above, and pass.

There’s your basic dividing line between the people who shoot up in their careers like a rocket ship, and those who don’t — right there.

Marc was lamenting the road not taken; I’m more concerned with the road taken badly. At the end of the day, your success and certainly your capacity to even understand what success is in this business or any business is based more on your motivation than raw talent. Anyone who has watched this season’s lineup of mediocre TV programming or been forced to watch Norbit knows this to be true.

Andreessen continued:

The world is a very malleable place. If you know what you want, and you go for it with maximum energy and drive and passion, the world will often reconfigure itself around you much more quickly and easily than you would think.

To be fair, Andreessen has likely never tried to break into the entertainment business and probably can’t appreciate its unique challenges. But certainly Steve Martin has. In a recent interview on Charlie Rose, Steve Martin waxed philosophical about how to succeed in this business:

When people ask me how do you make it in show business or whatever, what I always tell them . . . and nobody ever takes note of it cuz itâ€s not the answer they wanted to hear. What they want to hear is hereâ€s how you get an agent, hereâ€s how you write a script, hereâ€s how you do this. But, I always say, “Be so good they canâ€t ignore you.” If somebodyâ€s thinking, “How can I be really good?”, people are going to come to you. Itâ€s much easier doing it that way than going to cocktail parties.

Hey, it’s worth a shot.

One of my web start-up clients recently extolled the virtues of smart money over dumb money.

My client asserted that smart money is the best way to grow a start-up. In addition to capital, smart money may provide infrastructure, personnel and the input of boards of directors and advisers. These boards provide additional expertise and guidance. Moreover the optics or perception of their association with the start-up increases the venture’s curb appeal and chances for success.

Dumb money, he cautioned, isnâ€t pejorative; it merely describes a cash investment with little or no oversight of the actual use of the funds other than initial approval of certain elements, cash flow and the overall budget.

To be fair, it’s like comparing apples and oranges. Smart and dumb money deals are structured in different ways to address different risks and expected returns of very different investors. Nevertheless, I was struck by the disparate thinking of movie producers and start-up entrepreneurs; film financiers and venture capitalists in their capital preferences.

My start up client preferred working with smart money from VC investors because he could leverage greater resources into the growth of his company than he could with the same amount of dumb money.

I explained that smart money is anathema to movie people unless it comes with distribution and even then, they’re never thrilled with an investor armed with approval rights over talent, budget and distribution. Dumb money shuts up and stays out of the way.

That said, we both agreed that if an investor offers up smart money, dumb money or any other kind of money, take it (provided it’s legal).

AFTRA accused Nickelodeon of improperly negotiating talent revenue participation for the cable outlet outside of Nick’s shows. A copy of AFTRA’s purported letter to Nick (I couldn’t verify its authenticity) is here.

More specifically, AFTRA’s letter asserts that Nick requires “that the performer grant to the employer a right to a ‘profit participation’ interest in the talent’s third-party income as a condition of employment” in violation of AFTRA’s collective bargaining agreement and possibly California law.

I don’t think that AFTRA has a leg to stand on or they would have cited the applicable provisions of their agreement and the law chapter and verse. I suspect that Nick’s lawyers came to the same conclusion.

What is clear is that the major studios, networks and cable outlets are looking for the next Martha Stewart or, in Nick’s case, their answer to the Disney Channel’s “Hannah Montana”; building brands on the backs of the talent they break with the goal of cashing in on their success essentially forever.

While it’s difficult to empathize with the big entertainment companies, production costs are rising and viewership is more fragmented. As a result, they’re on a desperate search for new revenue streams.

I posted about this emerging deal point several months ago when the Food Network started asking for similar language in their talent agreements. With Nick now taking up the cause, a trend has developed and it won’t be long before the rest follow suit.

What was once an unreasonable “ask,” will become – if it isn’t already – business affairs policy unless talent reps develop the leverage to collectively reject it. However, with the potential millions to be made by breaking the next Miley Cyrus and a surplus of talented kids (and their parents) hoping to make it big, I doubt that’s possible.

As in any business, there are terms of art that are commonly used in negotiations in the entertainment business. I’ve added a glossary that defines some of the words and phrases used, devised or overheard during these discussions.

I encourage my colleagues to email me any additions or corrections. You can click “Lingua Franca” on the gray strip above or here to get to the page.

This is a work in progress, so please check often for updates.

Since this year’s Academy Awards are on Sunday, I’m reposting my August 28, 2007 post, “Credit Where Credit Is Due: Is There Enough Room On Awards Night For More Producers?” for Dealfatigue readers.

Two pictures in contention – “Michael Clayton” and “Juno” – each have four credited producers but according to the Academy’s website, only three producers on each of these pictures are eligible to accept the Best Picture award. So if either of these pictures picks up the award for Best Picture, apparently one producer won’t be getting an Oscar but the other three will. This, despite the fact that the Motion Picture Academy’s rules allow for the inclusion of an additional producer under “extraordinary circumstances.”

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After five producers received Best Picture Oscars for “Shakespeare in Love” in 1999, the Motion Picture Academy placed a three producer per Oscar limit on any film under contention. The Academy also required the honored three to be fully functioning producers on the pictures; studio execs, personal managers and lawyers (oh, well) need not apply.

Subsequent to enactment, certain producers who were credited on “Crash,” “Little Miss Sunshine” and “The Departed” but eliminated for award contention by this rule made some compelling objections against it. As a result, the Academy is relaxing its requirements, albeit slightly, to allow for the inclusion of one additional producer under certain rare and extraordinary circumstances. Each of the producers must be credited as “producer,” thereby excluding any individuals with executive producer or associate producer credits.

Meanwhile, the Television Academy is tightening its eligibility requirements in an effort to “crackdown on producer credit inflation” by capping the number of individual producers who can receive an Emmy for a comedy series at 11 and a drama series at 10. But even with these higher numbers, exceptions seem to be proliferating with “Gray’s Anatomy” and “House” each having grandfathered eligibility for 13 producer nominations.

Note that neither of these rules limit the number of producer credits accorded to any motion picture or television program. They just limit the number of producers eligible for award nominations. Nevertheless, the academies are right to be concerned with credit dilution. These awards are intended to acknowledge the creative efforts of those responsible for the works in contention. They are also a great way to increase box office gross. As I have said elsewhere in this blog, credits are “the coin of the realm” in the industry and diluting any credit reduces their value just like real currency. However, it is wrong-headed to set arbitrary caps on the number of producers eligible for an award as a means of addressing this capricious credit problem. Mandating that all award eligible producers render meaningful, creative services is a far more equitable way to go.

Until the academies modify their position, reps will need to be creative to increase their clients’ chances. Although the Motion Picture Academy asserts that it is “not bound by any contract or agreement relating to the sharing or giving of credit and reserves the right to make its own determination of credit for award consideration,” I have been involved in several negotiations where reps for producers (myself included) negotiated producer credit order “for all purposes, including award consideration.” Without a more logical approach, it is inevitable that the contractual intent of the parties to producer agreements versus the subjective consideration of the academies will be tested in the near future.

Although “A Chorus Line” opened on Broadway over thirty years ago, the dancers who signed away their life story rights as the basis for the musical back in 1974 recently renegotiated the terms of their deal. The dancers originally signed away these rights for $1 each during “workshop” sessions for the musical.

In 1975, Michael Bennnett, the producer, choreographer and co-writer of the book for the show, renegotiated these terms after “A Chorus Line” moved to Broadway; dividing about one-tenth of his own royalties and about one-third of his rights income derived from the show and its subsidiary rights with the dancers. “This kind of arrangement has now become standard, though with less generous terms, for people involved in workshops that lead to Broadway productions,” wrote Campbell Robertson for The New York Times.

Apparently, many of the dancers remained unsatisfied with these terms. For a more complete chronology, read here.

The Bennett Estate’s recent revival of the show on Broadway triggered the renegotiations. The previous agreement only applied to the original Broadway production not to first class productions like Broadway revivals and related road shows. The revival presented the dancers with a unique opportunity to renegotiate. After 16 months, the dancers successfully negotiated an additional (undisclosed) share of revenues in the current production as well as in all past and future first-class productions of the show.

The “Chorus Line” renegotiation provides broader implications to deal making for two reasons:

1. Leverage only comes from immediately recognizing the other party’s needs and fears in a particular deal and then effectively using that leverage in negotiations. Accurately assessing your leverage can be tricky since your own needs and fears are always in play (this is so even if you have representation – e.g., the writers strike negotiations).

Here, the Estate wanted to mount a new production of “A Chorus Line” which required additional permission from the dancers. The original show and subsidiary rights grossed over $280 million. Clearly, the Estate was a motivated negotiator with that much money at stake. Each of the 37 dancers however, was unorganized and had differing agendas. I suspect the 16-month lag in closing this deal was due in part to those detracting elements on the dancers’ side of the equation.

2. We now live in an era of franchised content – “everything old is new again” as the show tune goes. Even early-stage deals (aka deal memos) should be negotiated accordingly with an eye towards future revenues from media not even conceived at the time the deal is struck. If the deal is worth papering, it is worth papering thoroughly. Opportunities to renegotiate may later prove to be few and far between. In this case, it took the dancers over 30 years to get a taste of these revenues. Most people aren’t prepared to wait that long.

Everywhere you look, change is in the air.

All indications point to the writers strike being called off by Monday; certainly by sometime next week, at the latest. This is great news but it will likely take many months for the industry to get back on its feet and much longer to discern how the industry changed forever as a result of the strike. With NBC head Jeff Zucker talking about changing the business model that dominated the development and production of television shows for the past 50 years, you can be rest assured that some things will never be the same.

The strike in many ways affected a discreet group of people working in the business: the major studios and networks and those writers employed by them. This group by no means represents the entire entertainment industry.

Despite the strike, many non-signatory independents continued to do business and there was a boon in reality television production. Scribes writing screenplays for non-signatory companies continued to write. Nevertheless, there remained a cloud of dread over the entire industry.

Now that the strike appears to be over, I expect that the most dramatic short-term effect will be a spike in industry-wide morale rather than a spike in production. In my negotiations with reps this week, most are optimistic about the near future. To be sure, there is much to be happy about. However, it is unlikely that there will be a significant difference between working conditions over the next few weeks and those of the last few.

The WGA’s rank and file must approve the new contract (though it appears that the strike will be called off while the details are worked out). Many TV shows will remain shut down until next season; some shutting down permanently, making it unlikely that many writers and crew will have jobs to return to next week. The local economy will continue to languish; with industry job losses and mortgage foreclosures likely continuing into the spring if not longer.

However, the new deal should make many writers happy in the longer term. Go here for a summary of the tentative deal. The most notable deal points are the WGA’s exclusive jurisdiction over the Internet and cell phones, a residual kicker in new media reuse fees and separated rights. I will provide a more detailed analysis of the tentative deal in another post.

It will be interesting to see what effect, if any, the WGA’s exclusive Internet jurisdiction will have on those writing new media content. Although many writers of podcasts and similar content will be clamoring to join the Guild, Internet writing services apparently don’t apply towards membership in the WGA. Podcasts and other web content are not generally produced by signatories to the WGA agreement. Consequently such services will not be subject to the WGA’s jurisdiction despite the terms of this deal.

Despite the lack of details, most of my clients writing new media content for the Internet who are not yet Guild members will still expect the new agreement to analogously apply to their writing services even if their employer is not a signatory. Signatories for their part will no longer be able to hire non-WGA scribes to create new media content. Regardless of signatory or membership status, it is safe to say that these developments will likely mean big changes for new media creatives and those that hire them across the board.

As of this writing, news outlets are cautiously optimistic that striking writers will be able to close a deal with the AMPTP within the next few days.

But what broke the impasse? Writers’ dwindling bank accounts? The studios’ mounting revenue losses? The Oscar telecast? While all of these elements were contributing factors, there’s no doubt that the addition of studio principals to the negotiations made all the difference.

Several weeks ago, Alfredo Barrios, a former corporate lawyer turned writer and WGA strike captain, posted a missive on a pro-WGA blog, unitedhollywood.com urging that studio principals become directly involved in talks in order to restart negotiations. Regardless of which side you’re on, and despite Alfredo Barrios’s obvious bias in favor of striking writers like himself, Barrios eloquently describes the “psychology” of the deal for both sides; a mindset that ultimately required the principals to take the lead in strike negotiations.

The following is an edited version of Barrios’s post. You can read it in its entirety here.

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BASIC RULES
First, understand the relationship between Nick Counter and the studios. Itâ€s essentially a lawyer-client relationship. The AMPTP is run by lawyers like Nick Counter and Carol Lombardini. Think of it as an in-house law firm. Their goal is to “negotiate” deals with unions on behalf of their clients – the studios.

As lawyers, Counter and Lombardi have to justify their paycheck. What does that mean? They have to add value. Theyâ€ve promised to deliver a more favorable labor deal than the studios would get without them. Otherwise, there would be no point in hiring them (or more aptly, keeping them around). So our loss is their gain. And the bigger our loss, the bigger their gain.

Now hereâ€s the thing to remember, fairness and reasonableness have NOTHING TO DO with their approach. No corporate lawyer Iâ€ve ever known has ever met with a client and promised to get them the most “fair and equitable deal” possible. Thatâ€s not their goal. Instead, they promise to save them a lot of money – remember, added value. If the studios were genuinely interested in reaching a fair and equitable deal, the CEOs and their CFOs would talk directly to our negotiating committee and financial people, and a deal could be reached today – by the way, this is what weâ€re driving towards. We will know we will have won when the CEOs and their CFOs talk to us directly. [Editor’s Note: as we all know now, this is what happened here].

CEOs hate uncertainty. They run their businesses based on long-range plans that are based on long-range assumptions. So as a lawyer, you do your very best to put their mind at ease when faced with an inherently unstable situation – be it a lawsuit, a takeover deal, or a strike. You say to them, “You donâ€t have to worry about a thing. We have this under control.” Then you spell out what you believe (more often hope) is the most likely outcome. “We feel confident that we can get this suit dismissed at the pre-trial stage;” “ get this deal closed by Christmas;” “resolve this strike by_______ on ________ terms.” The CEOs nod their heads happily, confident that their well-heeled, well-paid lawyers are looking out for their interests, and then go about their business.

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Going back to CEO peace of mind. This comes in a couple of forms. First, lawyers tell their clients that they wonâ€t have to get their hands dirty. Lawyers will be the bad cops on their behalf. Theyâ€ll serve as a shield for their clients. Lawyers always want their clients to feel comfortable – thatâ€s part of whatâ€s promised. “Go about your life. Donâ€t worry about a thing.” Second, it comes in the form of laying out how things will play out. “You can expect that the plaintiffs will engage in several months of discovery;” “the company youâ€re hoping to acquire will seek a white knight;” “the strike will lose steam and the writers will fragment.” All things that have a very good chance of happening. And when they do, the lawyer looks like a genius, and his client thinks, “Man, Iâ€m in really good hands. I have nothing to worry about.” Itâ€s about managing expectations.

THE LAWYERâ€S STRATEGY

Lawyers try to do three things to their adversaries: (1) get them to doubt the validity of their position; (2) undervalue whatever cards theyâ€re holding (in other words, underestimate whatever leverage they have); and (3) kill their resolve.

How does a lawyer get an adversary to doubt his position? Well, in litigation, it comes by spinning the facts. In transactional deals, by spinning the financial numbers. And in a strike situation, by spinning both. One common technique is making a nonsensical argument so many times that it begins to take on the air of a legitimate one and eventually some people (judges, jury, the public in general and sometimes even your adversaries) begin to accept it as truth. Lawyers are masters of this. Think of these doozies: “If the glove doesnâ€t fit, you must acquit;” “Smoking doesnâ€t cause cancer;” and my personal favorite, “We donâ€t have a business plan for or any real revenue from the Internet.” Or how about that $130 million offer that the studios supposedly made us several weeks back? The one that didnâ€t actually add up. Facts and numbers are spun every day in the courtroom, in the negotiating room and in the press by lawyers.

Now, hereâ€s the thing to remember. Itâ€s the lawyer who does the spinning. No CEO wants to do it. Why? Because so many of them want to be known as “straight shooters” – i.e., guys who donâ€t lie. Plus, they like to be liked. And going out and spinning facts and numbers… well, thatâ€s like acting like a lawyer. Like Nick Counter. Thatâ€s why they hired him to do it. They want to be comfortable. Notably, neither Counter nor any of the CEOs has actually done any real press interviews to defend their position. Not hard to see why: itâ€s utter nonsense. So they spin in press releases or “leaked” stories that are regurgitated by mouthpiece trade papers and other seemingly “unbiased” but wholly bought off parties.

And how does a corporate lawyer gets an adversary to lose confidence in whatever leverage he has? One way is to engage in positional bargaining. That means anchoring your negotiating position to an extreme and unprincipled number over such a long period of time that your adversary starts to doubt the cards heâ€s holding and eventually moves off of his number and gets closer to yours. Thatâ€s what the AMPTP has been attempting to do with its new media proposals – or actually, lack of proposals. Theyâ€ve anchored to basically zero payments for new media in the face of our fairly principled new media proposals. Theyâ€re hoping that doubt will creep into our psyche – “Wow, man, those companies are really holding to that number, maybe our bargaining position isnâ€t as strong as a I thought. Maybe we should take whatever the DGA gets.” And so on…

Once you start down that path, youâ€re losing your resolve. The corporate lawyer knows youâ€ll start to rationalize why you should take a really bad deal. And you start to buy into the arguments heâ€s making – “That lawyer of yours isnâ€t doing you any favors.” “I hate to tell you this, but youâ€re wasting a lot of time and energy with this case. Itâ€s a loser.” “As a guy who knows, you should take what weâ€re offering you because itâ€s not going to get better.” Sound familiar? Itâ€s the sort of stuff being put out by the AMPTPâ€s PR guru, Chris Lehane, who, by the way, is also a lawyer – and a classmate of mine from law school. Small world, huh? Couple this psychological warfare with the increasing expense of fighting… and people will crack.

Posture and overwhelm with superior power – or the semblance of power. Thatâ€s Corporate Lawyering 101.

So… how do we win?

OUR STRATEGY

In my experience, the guys that win against corporate lawyers and their clients – and believe me, Iâ€ve seen it happen – are the guys that (a) never lose sight of their cards – in other words, arenâ€t fooled into believing that theyâ€re holding garbage, and (b) play lots of offense.

Iâ€ll begin with playing offense. That means taking the fight to the other guyâ€s client – the decision makers – the CEOs. Remember, THEY LIKE TO BE COMFORTABLE. Thatâ€s what their lawyer promised them they would be. So how do you take the fight to them? Well, in litigation, you bring them into the game by making them the target of discovery – you depose them, go through their papers, ask them all sorts of question. You take them out of their comfort zone. You make them the focal point of the case… theyâ€re the bad guy. In transactional matters, say a takeover attempt where you represent the buyer, you go after the “entrenched management” that wants to deprive the shareholders of the real value of their holdings… theyâ€re the bad guy. In a strike, you hold the CEOs accountable. Why? Because they are ultimately the bad guys… the buck stops with them, and they need to be reminded of that always. Counter is just their hired gun.

And by taking the fight to them. I mean, maintaining picket lines at the studios at peak levels, relentlessly picketing locations, continuing to put out creative videos that entertain and inform people about the strike, denying waivers to award shows and picketing those shows, seeking alternative ways to put out creative work on the Internet for pay, etc.

Playing this kind of offense serves a couple of purposes. First, when a CEO drives through the studio gates, or hears about how a location shoot was impacted by picketing (like for example, when an actor leaves the set or a day has been added to the schedule), or sees how his untenable bargaining positions are being ripped apart on websites, or is told about how his award show is falling apart, or reads how Google is about to form a competing entertainment powerhouse, it all collectively begins to call into question the promise that Counter made – i.e., that we would crumble. Itâ€s a daily reminder that we are not losing our resolve. It makes him worry. His expectations arenâ€t being met. Things are uncertain again. And it begins to chip away at Counterâ€s credibility as the guy who could resolve the strike with minimal inconvenience to the studio CEOs.

This last point is important. Why? Because the way you win is by taking the lawyer out of the equation. Deny him the promise that he made to his client – i.e., that he would add value by battering all of us down. Once the CEOs begin to believe that weâ€ll stick to our guns until we get a fair and equitable deal, thatâ€s when weâ€ve won. Thatâ€s when the CEOs and their CFOs will step in and begin to deal directly with us. Why not Counter? Because his job wasnâ€t to deal with real and fair numbers; it was to screw us. Once he fails at that, itâ€s time for others to step in. Trust me, it happens.

But it requires believing in the cards youâ€re holding – your leverage – and sticking it out. The bigger the show of resolve, the faster the CEOs will dispatch Counter. As profit losses mount and their share prices take bigger hits, the studios will realize that holding out for Counterâ€s promise looks increasingly like a foolâ€s game.

But the CEOs will only step in if they believe a fair a reasonable deal can be reached. Thatâ€s why itâ€s important to always maintain principled bargaining proposals on the table – as I believe we have throughout. Unlike Counter, I donâ€t believe weâ€re engaging in the positional bargaining. Having said that, I think we made one very serious mistake in continuing to keep our DVD proposals off the table. Bad faith bargaining – like the type that Counter has engaged throughout – can never be rewarded, and I have heard no compelling reason to keep our DVD proposals off the table.

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As for acting like “nicer” and “more accommodating” guys and gals… Well, let me just say that in all of my years as a corporate lawyer, “nice” and “accommodating” adversaries who never stuck to their guns and didnâ€t bring the fight to us never got better deals. They only get worse ones. So donâ€t buy into the our leadershipâ€s too militant line of argument. Theyâ€re not. Theyâ€re being appropriately tough. Trust me, you wouldnâ€t want it any other way. Now itâ€s up to the rest of us to hang tough with them.

The Los Angeles Times and other news outlets reported over the weekend that the broad strokes of a deal between the AMPTP and the WGA could be in the offing as early as next Friday. The parties reportedly closed the gap over how much the studios should pay writers for free streaming of movies and television programs over the Internet. The parties still need to find a mutually agreeable distinction between content exploitation in which residuals would be payable and content promotion which would be residual-free.

The Directors Guild closed their deal over these issues last month but many striking writers (and SAG members) criticized that deal for not going far enough on streaming.

The breakthrough came when Bob Iger and Peter Chernin, the designated studio heads negotiating the deal, included more favorable streaming residuals than those in the DGA deal and separated rights for shows created for the Internet so writers receive extra compensation and credit for television shows based on online programming.

However, Guild leaders issued the following cautionary statement on Sunday morning:

To Our Fellow Members,

While fully mindful of the continuing media blackout, we write you to address the rumors and reports that undoubtedly you have been hearing.

The facts: we are still in talks and do not yet have a contract. When and if a tentative agreement is reached, the first thing we will do is alert our membership with an e-mail message. Until then, please disregard rumors about either the existence of an agreement or its terms.

Until we have reached an agreement with the AMPTP, it is essential that we continue to show our resolve, solidarity, and strength.

Picketing will resume on Monday. Our leverage at the bargaining table is directly affected by your commitment to our cause. Please continue to show your support on the line. We are all in this together.

Best,

Patric M. Verrone
President, WGAW

Michael Winship
President, WGAE

As I posted earlier, the break in the impasse here was the result of the principals fronting these discussions and negotiators likely ghost writing arguments for and against critical deal points. Sometimes, this approach is the only way to make meaningful progress in deal negotiations. Once Iger, Chernin, Verrone and Winship work out these broad strokes, the Guild’s rank and file still have to approve the deal. That would pave the way to resolving the strike and getting writers back to work in time to save pilot season and part of the fall television schedule (not to mention feature work) even if it takes months for labor negotiators to work out the details.

The three month old writers strike dramatically reduced the number of produced programs for the 2007-08 television season and pilot season is now in jeopardy. Movie deals are on hold; term deals have been terminated for force majeure and thousands are either out of work or about to be let go (including several agents I know who are hard pressed to find any other form of meaningful work – go figure!).

Studios and guild reps are under a news blackout while they engage in back channel and informal discussions regarding the strike impasse with the goal of more formal talks in the next few days; the first since negotiations broke down on December 7th.

Guild leaders recently withdrew their animation and reality TV proposals. They also agreed not to picket the Grammys. The Guild’s actions could be viewed as good faith concessions to help restart negotiations. On the other hand, they could simply be signs of strike fatigue and capitulation. Whatever the motivation, the AMPTP’s perception (and that of the WGA membership) stand to profoundly affect the psychology of pending negotiations and ultimately, the outcome of any deal.

While the Guild’s alternatives are limited, their current tactics may weaken the leverage that only a complete shut-down could support. The Guild continues to enter into piecemeal agreements with independent production and distribution companies – most recently, Lions Gate, RKO, Marvel and The Weinstein Company – based on the WGA’s initial proposals in an attempt to gain additional leverage. The WGA is betting that these deals will put pressure on the studios and networks to settle. However, the AMPTP dismissed these pacts as meaningless “one-off” agreements since the terms will be superseded by any deal ultimately negotiated by the parties. The Guild also runs the risk that these deals will split the rank in file between those working and getting paid on waiver-projects and those that remain unpaid and on picket lines. The Guild is already contending with an erosion of support in some quarters.

Certain Guild members are already grumbling about the prospect of “going financial core.” Rumor has it that a number of writers continue to develop projects during the strike “without paper” (i.e., without a written agreement in place) to pay the bills. It’s obvious to anyone watching “The Daily Show” or “The Cobert Report” that staff writers continue to work for these shows despite strike rule prohibitions. Hey, but I could be wrong.

With those reservations, there are several good things going for this latest round of talks for all concerned.

The principals are now talking instead of their reps. To be sure, representatives for both sides are still involved with these discussions but direct communication by the principals can diffuse the current hostility between the parties and allow them to refocus their energies on material deal points instead of petulance and platitudes.

The Directors Guild pact can be used as precedent. Since the AMPTP closed their deal with the DGA, the parties can now use the material terms of that agreement as a template for their own negotiations and adjust their respective expectations to those deal points in which there is a real prospect for consensus.

Weakening resolve on both sides. The studios and networks are quickly running out of content; writers need to work. Both sides realize that given the strike’s enormous financial toll on individuals, the local economy and corporate profits, it is in everyone’s best interests to work a deal as soon as possible; ideally before the Oscar telecast on February 24th.

Lastly, both parties should offer the other an ego nickel; a deal point or two of minimal value to the giving party that validates the receiving party’s demands enough for them to save face with their constituencies. Sooner or later, the parties will be working together again and a few ego-nickels might expedite closure of a deal both parties can live with if not embrace.

As part of my daily online read, I culled the following from the past week or so. Usually I post these links and any editorial to facebook. I am going to start posting the most significant ones – those that I think are required reading for reps (and our respective clients) – on a regular basis to dealfatigue. Please let me know what you think.

Scrabulous Facing Copyright Infringement Charges

Change in the Business Model at EA Games

Netflix lifts limits on seeing online movies Read this if you read anything today. This is where video (and TV…) are headed. Wondering if it’s possible to do a deal with Netflix and Apple directly as you can with music.

Which comes on the heels of . . .
Apple Bets on Online Movie Rentals

American Library Association announces literary award winners

The Food Network made Emeril Lagasse and Rachael Ray into television stars and household names. They’ve also become multi-millionaires from the sales of countless books and other merchandise; revenues the network admits are typically excluded from their talent deals.

The NY Times reports that about a year ago, the “Food Network began aggressively trying to change that with new deals that were ‘way more onerous’ from the stars†point of view, said a person who has been affected by the changing strategy, by insisting on a stake in book deals and licensing ventures, and control over outside activities.”

This is an important sea change in talent negotiations on non-scripted programming. While my experience has been that network participation in merchandising has been part of the ask from cable outlets, it has not, for the most part, been a deal breaker and then only when it arose from an outlet’s desire to embark on its own merchandising efforts (i.e., revenues from branding the network as opposed to the talent).

The Food Network’s approach will likely influence future negotiations at other outlets breaking new talent in their programming though probably less so on deals featuring talent with more hosting experience (i.e., brand recognition in their own right) or have pre-existing merchandising deals. Such talent will have more negotiating leverage but if pressed, may be able to negotiate limited outlet participation “above a baseline” from any bump in merchandising revenues after hosting the outlet’s programming.

Variety’s Dave McNary reported that the WGA rejected requests for strike waivers by the Golden Globes and Oscar telecasts today. While the Guild granted waivers during the strike in 1988, I doubt they will now- even to Letterman and Leno -until and unless meaningful negotiations resume for two reasons. Awards shows present a high profile opportunity to make an adverse and very public impact on the quality of these telecasts. Secondly, any waiver now, absent meaningful negotiations and in the face of mounting holiday debts for WGA members, may erode the widespread support of Guild members to the cause.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

The LA Times ran a story that striking writers are in talks with venture capitalists to finance and launch Internet start-up companies. “Silicon Valley investors historically have been averse to backing entertainment start-ups, believing that such efforts were less likely to generate huge paydays than technology companies.” There’s been a change in that perspective, albeit a limited one, after the success of Youtube. I’ve been involved in several of these deals. One started just before the strike and was in production as late as last week. They’re interesting opportunities on the cutting edge of where the entertainment business appears to be headed. However, without the right business model, these ventures will – if they go anywhere – lead to cross-over deals for TV programming rather than a big pay day for an Internet venture. It reminds me of Web 1.0’s icebox.com or my stint with Film Roman’s Level 13 back in the day. Despite the risks, more and more of my clients are migrating to the Internet, if not for the potential payoff then for a chance to broaden their experience and marketability down the road.

Jonathan Handel’s blog alerted me to the pending “day and date” release of the “The Bourne Ultimatum” on both DVD and via Internet delivery on December 18th. As Handel and the LA Times report, this will be the first day and date release of a motion picture on video in both Internet/electronic media and physical media. Usually (if there is such a thing given the pace of things now), electronic delivery of a motion picture streets with the pay-per-view or pay-TV windows.

Simultaneous Internet/Home Video release dates are consistent with current deal terms and those of older vintage that producers and distributors routinely negotiate for home video rights on motion pictures. The difference now is the form of delivery; physical media vs. electronic media. Although the revenue splits on existing deals might get tricky depending on the terms negotiated, the business is already acclimated to evolving home video revenue structures having moved from the traditional royalty formula to revenue sharing. While Handel correctly raises the prospect of brick and mortar retailer resistance, I suspect the issue of greater impact will come from producers, actors, financiers and other profit participants on motion pictures. Once they become aware of the more favorable cost differential between video tape manufacturing costs and broadband delivery they will expect a payment structure that accounts for the savings much as the WGA is demanding now.

That’s what I said as I cautioned the rep on the other side of recent negotiations unrelated to the WGA strike talks. I was sharing my very real concern that our negotiations were polarizing our respective clients and actually making it harder, if not impossible for us to close a deal.

Strike negotiators for both sides are well advised to conduct themselves accordingly. Dave McNary wrote in Variety that talks tanked late on Friday “after two weeks of bitter and unproductive negotiations” with no real sign of when or whether they will continue any time soon. Sounds pretty grim but maybe a holiday hiatus from hostilities (and several good nights’ of sleep, I suspect) will make for more productive negotiations. For a thorough breakdown of the issues, check here and here.

Prior to Friday’s “cratering,” Robert King, a member of the WGA Negotiating Committee, blogged prosaic on the state of negotiations and the current mindset of the parties this way:

Part of the problem of negotiations—and especially this negotiation—is that both sides tend to interpret the contractual proposals and counter-proposals in one way: as an attempt to fuck them. This is complicated by the fact that sometimes managementâ€s proposals are designed to do exactly that; and sometimes they arenâ€t designed to do that, but might be used later by less enlightened souls to do that.

So dialogue, in a smaller room, with fewer people, and less of the theatrics of negotiations, allows everyone to discover what wasnâ€t designed to fuck; or was designed to protect against being fucked by someone else and has only the appearance of a personal fuck; what was inelegantly put; what has unintended consequences, etc. Itâ€s also a place where language can be designed that satisfies everyoneâ€s fears of being fucked.

In other words, sometimes there is the illusion of being farther apart than we actually are; and smaller side bar dialogue helps us discover if thatâ€s indeed the case.

And then again there is just plain old being far apart.

Hopefully, this breather will allow cooler heads to prevail at the negotiating table. The studios and networks will start feeling the pinch from dwindling project reserves and the first stirrings of pilot season. By mid January, mounting financial pressures from holiday purchases and the lack of work will compel writers to return to the bargaining table. Maybe then, the parties will find creative ways to resolve the issues amicably and resourcefully.

And then again there is just plain old being too far apart.

With the WGA strike two weeks old tonight, the demand for quality writers (or near-acceptable substitutes) is getting acute.

The Guild only has jurisdiction in the US; making Canadian or UK writers a potential writing resource during the strike. In other words, Canadian and UK writers living and working in their respective countries should be able to write for the studios and networks without retribution. However, reps with writing clients overseas – myself included – are advising caution.

As far as the Guild is concerned, the less writing anywhere, in any media, the better negotiating leverage they have with the studios.The Guild’s Strike Rules threaten non-union scribes with denial of future Guild membership if they’re caught scab-writing for struck companies. The Writers Guild of Canada made it clear it would turn in any Canadian writers caught working for struck companies during the strike. Although UK resident writers could likewise write during the strike, there is mounting pressure for them to stand down as well. Could India be next?

Here in Los Angeles, rep confusion abounds. I’ve debated with several agents and lawyers over what constitutes permitted writing for Guild members and non-members during the strike. For instance, can a WGA member: work for a non-struck company? work on an Internet-based project? work in animation? go to meetings for the writer’s optioned property? Not really, it depends, maybe and probably not. Not exactly a bright line.

The WGA Strike Rules prohibit its members from working for “struck companies;” typically companies that are signatories to the now-expired Minimum Basic Agreement. The distinction between struck (signatory) companies and non struck, non-signatory companies is a fallacy since WGA members are prohibited from working for non signatory companies. Although the Guild encourages its members to contact them for clarity, anecdotal evidence suggests otherwise as the Guild has yet to return any of my clients’ calls.

In the days ahead, I suspect that reps, writers and producers will step up efforts to clarify the confusion. In the meantime, caveat scriptor.

Craig Mazin waxes philosophical on tomorrow’s likely strike in his blog, The Artful Writer. Mazin wrote “I love the idea of [a] strong strike threat that leads to a deal. Thatâ€s my greatest hope (and itâ€s not dead yet). I hate the idea of a strike itself, which I think will hurt us. Thatâ€s my greatest fear.” Craig must be reading my blog posts. More likely, we both understand the foreseeable consequences. Like Craig, I still hold out the possibility for more talk of a deal and less of a strike. My bet against a strike is still good – for now.

An informal poll of my colleagues and clients supports the conclusion that a strike is a lose-lose outcome for everyone in the business; the writers in particular, regardless of any gains for the Guild at the negotiating table. Mazin writes:

The WGA will always suffer more than the companies in a strike. And, I think given the realties of the industry today, I think the WGA will always lose a strike.

Always.

. . . If we strike, itâ€s about proving to the companies that weâ€re still a union that can do something.

And for many writers here, that may be reason enough.